It Ain’t Fundamentally So
Posted 31. Aug, 2009 by Lorraine James in Market Commentary, Options Trading, Stock Investing
I’ve noticed particular brokers and fund managers lately talking buy recommendations that seem to be moving away from the low to mid cap stocks and back into the big blue chip companies.
When you think about it, it’s really not surprising that although our global economies are reportedly improving, there are still signs of uncertainty in the financial markets.
This being the case, are you comfortable speculating in small companies or would you prefer to put your nest egg in with the big dependables?
Technically speaking, you can see where market sentiment lies at the moment. Volumes on many blue chip stocks are impressive and the attractiveness of several large caps right now is that although the market has rallied hard of late, we are looking at trading prices that still have a way to go on the road to recovery.
What I find most interesting however, are the reports that suggest the big fund managers are considering blue chips once more, where they have favoured more speculative stocks for almost a decade. In the New York Times….chief investment officer at Harris Private Bank in Chicago says “It just goes to show that stocks of a particular style or sector can be out of favour for years”
Now I’m certain that Warren Buffett has not achieved billionaire status by investing in stocks that are in favour…
Generally speaking, investor psychology has people move toward a particular stock they’ve heard positive news about, or have to buy into because that’s what everyone else is doing and they don’t want to miss the boat.
Once in, they adopt an ownership attitude, become emotionally attached to their shares and hold on too long. Pretty soon they are riding the stock back down in a market correction, only to burn their fingers by getting back into the same stock in the hope of making up the loss on a re-bound.
It can be a sobering lesson for investors who expect quick re-bounds on yesterday’s winners.
What we all should heed is the fact that what has happened in the past is more than likely to occur again 
(as technical analysts we know this to be true), so good advice would be to leave your emotions out of the game, become familiar with a stock’s historical performance and educate yourself so you know how to determine if a company presents good value.
And more importantly, learn how to cover your Ass-ets. Put Protection = Peace of mind.
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